Mexico energy

Pemex: Open to recovery

December 28th 2016 | Mexico | Oil and gas | Multiple companies

Troubled Pemex will bring in foreign cash to develop untapped resources in 2017.

2017 will be a crucial year for Petróleos Mexicanos. Despite falling production and strained finances, Mexico's indebted national oil and gas company hopes to emerge from the global oil slump leaner and stronger. In 2017, Pemex will be bringing in foreign oil firms to develop promising untapped resources, aiming to revive output and return to profit. Foreigners taking a share of the country's oil wealth have long been taboo in Mexico, but desperate times call for desperate measures.

Pemex has lost money for 16 straight quarters as of the third quarter of 2016; in the three months to September, production fell 8% to 3m barrels of oil equivalent per day (boe/d). The company recognises that in 2017 it urgently needs to dig itself out from under its debt pile, which is set to soar to nearly US$100bn before the new year is in. In 2016 the company has raised US$4bn through long-term debt and exchanged US$1.6bn of bonds to help meet its near-term obligations. It has also sold non-core assets and set about slashing costs to focus spending on its upstream operations.

Foreign participation in the sector is the big hope. To spur national oil production, a vital source of government income, the government liberalised energy policy in 2014, allowing foreign involvement. Pemex has since sought out some of the world's leading oil and gas producers to help it tap Mexico's capital-intensive offshore fields. Not only their expertise will be valuable; they will bring crucial funding, as cash-strapped Pemex strives to control costs.

The first field to be developed will be the deepwater Trion oil play in the Gulf of Mexico, with deposits of around 485m boe, reportedly in need of investment of nearly US$11bn over 15 years. (Nearby, Pemex has also discovered light-crude deposits of around 200m boe.) Australia's BHP Billiton Ltd won the right in early December to develop Trion with Pemex. To lure in private partners, Pemex had cut its stake in the field, touted as the company's first foreign joint venture, by five percentage points to 40%.

Pemex has scheduled drilling at 30 exploratory wells in 2017, and a second round of auctions is due in March 2017. The first, in December, saw seven groups of international energy firms and eight individual bidders vie to explore ten deepwater oil blocks in the Gulf of Mexico. In the event, eight were bagged by the likes of ExxonMobil, China National Offshore Oil Corp (CNOOC) and Statoil. When developed, these resources could increase oil and gas output by 900,000 boe/d. Given Pemex's straitened finances, developing them without external funding would have been impossible.

A version of this article appears in our recent special report, Industries in 2017, which can be downloaded for free here.